C.H. Robinson Worldwide (CHRW -14.40%) has been battling through a tough demand and pricing environment, and its year-end results reflected it. Shares of the logistics company traded down 14% as of 1 p.m. ET Thursday after the company missed expectations.
A cyclical business turns downward
C.H. Robinson is in the business of connecting shippers to those who need transport services. It manages about $22 billion in freight and 19 million shipments annually. But in 2023, with large businesses fretting over inflation and the health of the consumer, demand for the company’s services fell, and pricing power evaporated.
Robinson earned $0.50 per share in the fourth quarter on revenue of $4.22 billion, falling short of Wall Street’s consensus expectation for $0.81 per share in earnings on sales of $4.34 billion. Revenue was down 16.7% for the quarter and 28.7% for the year, with gross profit decreasing by 20% in the fourth quarter.
“Our fourth quarter results did not meet our expectations as we continue to battle through a poor demand and pricing environment,” CEO Dave Bozeman said in a statement. “Weak freight demand in an elongated market trough, combined with excess carrier capacity, continued to result in a very competitive market.”
C.H. Robinson is trying to adjust to market conditions as best it can. Operating expenses fell by 10% in 2023, with personnel expenses dropping 14.9%. But in an industry as cyclical as trucking, there’s only so much even a good operator can do.
Is C.H. Robinson a buy after its big earnings miss?
This company has established itself as a best-in-class operator, and management is confident there will be better days ahead. Bozeman said, “2024 still presents some of the same challenges and headwinds,” but the company sees opportunities to add to market share during the downturn.
“I continue to see an opportunity for the company to reach its full potential and create more shareholder value by improving our value proposition, increasing our market share, accelerating growth, further reducing our structural costs, and improving our efficiency, operating margins and profitability,” said the CEO.
This is a great business in a tough industry. C.H. Robinson has been a top performer among transport companies, yet still trails the S&P 500 by more than 100 percentage points over the past decade on a total-return basis. Investors buying in based on their excitement about the potential should keep in mind the challenges C.H. Robinson faces ahead.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends C.H. Robinson Worldwide. The Motley Fool has a disclosure policy.
